Chapter 42 - § 42.7 • TAXES

• Jurisdiction: Colorado

§ 42.7 • TAXES

Classification of a mineral interest as personal/real property or as a corporeal/incorporeal interest has no impact on federal taxation. Williams & Meyers, supra at §§ 210 and 213. Likewise, in most jurisdictions, including Colorado, the classification of these interests as corporeal or incorporeal has no impact on state taxation. Id. at § 210. However, the tax laws in some states are impacted by the classification of these interests as either real or personal property. Id. at § 213. This is the case in Colorado, which has several tax statutes covering mineral interests and the profits obtained therefrom. See, e.g., C.R.S. §§ 39-1-101, et seq., 39-7-101, et seq., 39-22-101, et seq., and 39-29-101, et seq. Several of these statutes are phrased generally in terms of "real property."¹⁷ As a result, there have been several cases in Colorado addressing whether various mineral, royalty, and leasehold interests should be classified as real property within the scope of these tax statutes. Almost universally, the courts have held that the disputed interest is an interest in real property subject to taxation.¹⁸

Although Colorado provides for taxation of these mineral estates, often the assessors fail to assess taxes on unproducing severed mineral interests. This is due to a variety of factors, including unknown values, unknown severances, and the expense and time involved. However, a Colorado statute permits a surface owner to require county officials to assess taxes on the severed mineral interests. C.R.S. § 39-1-104.5. If taxes are not paid, the mineral interest(s) can be sold for delinquent taxes, which has the potential to extinguish all prior titles, rights, interests, and encumbrances affecting the minerals so assessed. In Colorado, if there is a tax sale, the surface owner has the right of first refusal to purchase the severed interest. C.R.S. § 39-11-150.

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^[17] See, e.g., C.R.S. §§ 39-1-102(14)(b) (property tax statute defining taxable "real property" as "[a]ll mines, quarries...